Institutional Investors Fuel Bitcoin Supply Shock

Bitcoin Reserves Near 7-Year Low as Institutional Investors Buy the Dip

Bitcoin's price has been volatile in recent months, but one trend has emerged: institutional investors are buying the dip. According to data from various sources, the collective reserves of Bitcoin across all crypto exchanges have declined to a near seven-year low, signaling a potential supply shock.

In mid-January, the Bitcoin price pulled back from $100,000 to around $90,000, but then rapidly recovered to $97,000 on heavy trading volume. During this time, global crypto hedge funds were reportedly buying the Bitcoin dip, increasing their market exposure to the cryptocurrency.

This trend is not new. In December, U.S.-based spot Bitcoin exchange-traded funds (ETFs) bought approximately 51,500 Bitcoins, nearly triple the 14,000 Bitcoins produced by miners that month. This trend is expected to continue into 2025, with more financial giants entering the crypto business and integrating crypto features into their businesses.

The recent surge of hedge fund Bitcoin buying activity could lead to a supply shock, as the demand for Bitcoin remains robust. As of January 13, the collective reserves of Bitcoin across all crypto exchanges, including Binance, declined to 2.35 million Bitcoins, representing a near seven-year low.

Moreover, the supply shock story could take more twists and turns in 2025. President-elect Donald Trump has vowed to build a "strategic national Bitcoin reserve," and there has been talk of the U.S. Treasury under the Trump administration possibly purchasing 200,000 Bitcoins per year. If both hedge funds and the Treasury are stockpiling Bitcoins, this could prompt retail traders to follow suit and buy Bitcoin based on FOMO (fear of missing out).

Bitcoin reserves on exchanges also dropped quickly in mid-November, hitting a six-year low at that time. The buying activity of large-scale whales undoubtedly contributed to the Bitcoin supply shortage, which led to a subsequent Bitcoin price pump. While it's hard to know for certain whether there is a cause-and-effect link between institutional buying, the shortage on exchanges, and the subsequent Bitcoin price pump, the long-term implications suggest a path